Microsoft extends Yahoo's U.S. search revenue guarantee

The Yahoo logo is shown at the company's headquarters in Sunnyvale, California April 16, 2013.

Reuters/Robert Galbraith

SAN FRANCISCO (Reuters) - Microsoft Corp extended the revenue guarantee it provides to Yahoo Inc in the companies' underperforming search partnership, Yahoo said on Tuesday.

The U.S. revenue-per-search guarantee, which had expired on March 31, will be extended for one year, and took effect on April 1, Yahoo said in its 10Q filing with the Securities and Exchange Commission on Tuesday.

Yahoo also disclosed strong financial results at two of its Asian assets on Tuesday. Chinese e-commerce company Alibaba Group, in which Yahoo owns a 24 percent stake, grew revenue roughly 80 percent year-on-year to $1.84 billion in the last three months of 2012.

Yahoo Japan, in which Yahoo owns a 35 percent stake, increased its net income by 13 percent to $343 million in the last three months of 2012.

Shares of Yahoo were up 3.4 percent at $26.02 in mid-day trading on Tuesday.

Extension of the search revenue guarantee marks Yahoo's first agreement with Microsoft since Marissa Mayer became Chief Executive of Yahoo in July. Mayer, who is seeking to reverse a multi-year decline in Yahoo's revenue and in its online traffic, has been critical of the Microsoft partnership struck by former Yahoo CEO Carol Bartz.

"We need to see monetization working better because we know that it can and we've seen other competitors in the space illustrate how well it can work," Mayer said of the deal during an investor conference in February.

Yahoo and Microsoft began a 10-year search partnership in 2010, hoping their combined efforts could mount a more competitive challenge to Google Inc, the world's No.1 search engine. But the partnership has not lived up to expectations.

Google remains the dominant search engine, with roughly two thirds of the U.S. search market, while Microsoft and Yahoo's combined share of the market is essentially unchanged.

What's more, the advertising rates that Yahoo reaps from the search ads on its website are below the levels it generated before partnering with Microsoft.

Under terms of the search partnership, Microsoft guaranteed for 18 months the revenue per search for ads that appear on Yahoo sites. In 2011, the companies extended the guarantee through March 2013.

In a note to investors on Tuesday, UBS analyst Eric Sheridan said he was raising his gross revenue estimates by $60 million over the next four quarters as a result of the extension of the guarantee.